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Norilsk Offers to Buy 15% Held by Rusal for $8.75 Billion

Rolls of aluminum are stacked at United Company Rusal's Irkutsk aluminum smelter, Russia. Source: Rusal via Bloomberg
Rolls of aluminum are stacked at United Company Rusal's Irkutsk aluminum smelter, Russia. Source: Rusal via Bloomberg

OAO GMK Norilsk Nickel offered to buy back a 15 percent stake held by United Co. Rusal for $8.75 billion as billionaires Vladimir Potanin and Oleg Deripaska battle for control of the world’s largest nickel producer.

The offer to 25 percent-shareholder Rusal amounts to $306 a share, a 20 percent premium to the six-month average, Moscow-based Norilsk said in a statement posted today on its website.

Deripaska is chief executive officer of Rusal, the largest aluminum producer, while Potanin’s Interros Holding controls about 30 percent of Norilsk. Rusal has rejected three offers since October 2010 to sell out of Norilsk. The last approach of $12.8 billion for a 20 percent stake was rebuffed March 4, even as billionaire Rusal investors Mikhail Prokhorov and Viktor Vekselberg backed a sale.

“This proposal is a no-go offer, made in a way that Rusal will most likely to snub it,” said George Buzhenitsa, a Moscow-based analyst at Deutsche Bank. “Rusal refused to sell the larger stake at $335 per share in March. Why should it accept an offer for only 15 percent at $306 per share?”

Rusal regards its Norilsk holding as a “strategic investment,” the Moscow-based company said in an e-mailed statement. “But, being a public company, we discuss all offers in accordance with Rusal’s corporate procedures,” it said.

Bank Loans

Norilsk shares fell 0.3 percent to 6,486 rubles at the 6:50 p.m. close in Moscow. Rusal’s Russian depositary receipts fell 0.5 percent to 307.97 rubles, paring a slump of as much as 3.6 percent.

Fitch Ratings today cut Norilsk one level to BB+, one step below investment grade, because of the dispute between Rusal and Interros and a delay in posting its 2010 financial results. Standard & Poor’s and Moodys Investors Service said this month they are reviewing Norilsk for a possible downgrade.

The offer to Rusal is valid until Sept. 5, provided it’s approved by Norilsk’s board on Aug. 24, and will be paid for by a mix of the company’s own funds and loans, the nickel producer said.

Norilsk may borrow $4.25 billion from banks to fund the buyback, Interfax reported, citing a person it didn’t identify. Maria Uvarova, spokeswoman for Norilsk, declined to comment.

Should Rusal snub the bid, Norilsk will make the offer to the rest of its shareholders on the same terms, board member Larisa Zelkova said in an Aug. 15 interview. An acceptance by Rusal would mean no general offer, she said.

Norilsk’s Uvarova said she couldn’t comment on plans to make the offer to other shareholders.

Potanin’s Stake

Norilsk and Rusal may be able to sign a shareholders’ agreement regarding the 10 percent stake Rusal would be left with following a buyback, the nickel producer said in its statement today.

Norilsk may cancel shares it buys back under the offer, Chairman Andrey Bugrov said in an interview on Aug. 12.

Russian rules allow a shareholder to skip making a mandatory offer for a company, normally triggered when a stake reaches 30 percent, if the threshold is breached because of a share cancellation, Artur Rokhlin, a partner at Moscow law firm UST, said at the time.

Regulations also permit a shareholder to sidestep the need for approval from the Federal Antimonopoly Service until their holding increases to as much as 50 percent, Rokhlin said.

Should Rusal reject the latest offer, Potanin’s Interros will likely sell a portion of its holding in Norilsk during the buyback to benefit from the premium, said Buzhenitsa at Deutsche Bank.

Potanin would be in a position to then build his stake in Norilsk at a lower price following the buyback and share cancellation by purchasing stock in the market, Buzhenitsa said.

Anton Muravyev, a spokesman for Interros, declined to comment.

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